DMC parent company falls short of promised spending

Apr. 16, 2013

A sign at Canfield and St. Antione directs patrons around the DMC in Detroit. The Detroit Medical Center, Michigan's largest health system was purchased by the for-profit Vanguard Health Systems of Tennessee. / WILLIAM ARCHIE/Detroit Free Press

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Detroit Free Press Business Writer

The for-profit parent company of the Detroit Medical Center fell slightly short of its capital investment pledge for the local hospital system for the second year in a row, according to a compliance report released Monday.

As part of a late 2010 purchase agreement, Nashville-based Vanguard Health Systems agreed to spend $850 million over five years at DMC for facility maintenance, upgrades and new construction. It also agreed to certain spending targets by each Dec. 31 anniversary of the deal.

While Vanguard spent $240.4 million in capital improvements at DMC through 2012, that figure was nearly $40 million off the required minimum, according to the second-annual report issued by Legacy DMC, a nonprofit organization whose 20-member board is tasked with monitoring Vanguard’s compliance.

Vanguard recently deposited $27.8 million in an escrow account to make up for part of the shortfall, the report said.

The company’s investments have resulted so far in a new children’s pediatrics specialty center on DMC’s central campus, as well as a revamped emergency room at Harper University Hospital and an operating room at Detroit Receiving Hospital. A complete list of completed or partially-completed DMC projects was not immediately available Monday afternoon.

In an interview, Vanguard’s Vice Chairman Keith Pitts said the company still intends to spend the full $850 million on upgrading DMC.

“The cash-flow timing has been a little bit behind,” Pitts said. “Unfortunately, when you start and have to get drawings done and planning and permits done, it’s hard to make a number” by a specific date.

Vanguard was nearly $42 million short of compliance in 2011 — the first anniversary of the deal — but later caught up.

Joe Walsh, president of Legacy DMC, said Vanguard appears to be fulfilling its other pledges to the eight-hospital DMC system.

“Generally speaking, we’re very pleased the transaction took place,” he said. “But as we indicate in the report, there are areas where we’re not where we thought we would have been after two years.”

DMC was a nonprofit hospital system until Vanguard acquired it at the end of 2010. The debt-financed purchase deal was valued at about $720 million — not including the $850-million commitment negotiated by DMC’s former CEO, Mike Duggan.

Vanguard became a publicly traded company six months after closing the DMC deal.

The Vanguard system encompasses 28 hospitals and other health faculties and is majority-owned by the Blackstone Group, a leading private equity firm. Vanguard’s hospitals are mostly in urban markets like Detroit.